Delaware Business Litigation Report

Chancery Grants Motion to Dismiss Breach of Fiduciary Duty Claims Against Officers in Controlling Stockholder Transaction Subject to Entire Fairness Review

Kormos v. Playtika Hldg. UK II Ltd., C.A. 2023-0396-SG (Del. Ch. May 3, 2024)
In this decision involving breach of fiduciary duty claims against two officers, the Court granted the individual defendants’ motions to dismiss for failure to state a claim. In a prior decision, the Court found the transaction, which involved a corporation’s self-tender offer providing non-pro rata benefits to a controlling stockholder, was subject to the entire fairness standard of review. Although the two officer-defendants presumably lacked independence from the controlling stockholder, the Court focused on the complaint’s failure to plead sufficient, non-conclusory facts of wrongdoing by the officers. While the plaintiff alleged conclusorily they had engaged in “unauthorized” communications with the controlling stockholder, the complaint also alleged that the board had directed management to assist the controlling stockholder with exploring potential transactions to sell some of its shares. The alleged communications also did not violate the plain terms of a special committee’s subsequent guidelines on communications with the controlling stockholder. The complaint also alleged that the communications at-issue were reported to the special committee, without suggesting that the committee found any fault with them. The complaint also failed to allege that the officers played a role in structuring the terms of the transaction that allegedly unfairly benefited the controller. In dismissing the claims, the Court explained it was not enough for the plaintiff to allege the officers lacked independence. Rather, to state a claim against them, the plaintiff must also allege facts supporting the officer-defendants actually “worked to advance the controller’s interest in detriment to [the corporation].” 

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